The economics of personal carbon trading

Proponents of personal carbon trading (PCT) make strong claims for the policy on the basis of environmental effectiveness, efficiency and equity, in comparison with alternative policies such as ‘upstream’ trading schemes. However, this review of the relevant theory and evidence suggests that these claims are not as strong as they may first appear. Effectiveness is qualified by the strong likelihood of a safety valve on grounds of political risk. The case for efficiency is challenged by the fact that the administrative costs of PCT will inevitably be higher than those of an upstream scheme. The additional effects of PCT would have to be significant in order to offset these costs sufficiently to make it the more efficient option. The case for equity is stronger. However, a PCT scheme in the UK would still create groups of net losers on low incomes who could not be compensated easily, and this would have some impact on its political acceptability.